PENCOM is an acronym for Pension Commission. In this article, you will learn:
- What a PENCOM compliance certificate is
- Who needs a PENCOM compliance certificate?
- Requirements for PENCOM registration
- Documents needed for the application
- Step-by-step process for obtaining the certificate (for new companies)
- Employer pension contribution obligations.
What is a PENCOM compliance certificate?
A PENCOM compliance certificate shows that you have satisfied the legal obligation required by employers to enroll their employees into the contributory pension scheme. This compliance is administered by PENCOM.
Why do I need a PENCOM certificate?
A Pension Clearance Certificate (PCC) proves your business complies with Nigeria’s Pension Reform Act. Specifically, Sections 3 and 4, which makes it mandatory for Employees in the Public Sector, Federal Capital Territory, states, local governments, and the private sector to be enrolled in a contributory pension scheme. Without PENCOM approval, these processes can be stalled.
A Pension Clearance Certificate (PCC) is crucial for several important reasons: For instance, PENCOM ensures such compliance is routine for all organizations.
1. Government and Corporate Bidding: It serves as a mandatory requirement if you wish to pursue contracts or business opportunities with Federal Government Ministries, Departments, and Agencies (MDAs), as well as numerous large corporate entities.
2. Regulatory Compliance: By law, any organization with a minimum of three employees must participate in the Contributory Pension Scheme (CPS). The PCC acts as official proof from PenCom that you are fulfilling your obligations regarding employee pension contributions and maintaining valid Group Life Insurance. Note that all these requirements are set and enforced by PENCOM.
3. Business Credibility: Presenting a valid PCC demonstrates to partners and stakeholders that your business is legitimate, transparent, and financially responsible. Staying up to date with PENCOM is thus beneficial to your business reputation.
Who needs a PENCOM compliance certificate?
In Nigeria, employers, specifically businesses, service providers, and vendors, need a Pension Clearance Certificate (PCC) to prove they are complying with the Pension Reform Act. The certificate is issued by the National Pension Commission (PenCom) and must be renewed annually. It is the oversight of PENCOM that guarantees proper compliance.
Document and Requirements for PENCOM registration
i. Certified list of employees of the organization as at the end of the last fiscal year. The certification should be done with an authorized official stamp of the applicant organization. Remember that registration depends on the completeness of these documents.
ii. Certified rate of monthly pension contributions (specifying employer and employee rates). The rates relating to the monthly emoluments are:
(a) Minimum of ten percent (10%) by the employer; and
(b) Minimum of eight percent (8%) by the employee.
iii. Evidence of remittance of monthly pension contributions of all employees for the last 3 fiscal years for organizations that have been in existence for the period. Documentation must meet PENCOM’s guidelines.
- For organizations not in existence for the last 3 years, evidence of remittance of pension contributions from the date of incorporation/registration/licensing.
- Evidence of remittance of all outstanding pension contributions and penalties as required by PENCOM procedures.
- Evidence of transfer of pension fund and assets before the commencement of the Contributory Pension Scheme to a licensed pension fund operator, where applicable, as documented for PENCOM compliance.
vii. Evidence of the current group life insurance policy procured for the staff of the organization specifying the number of employees covered and the sum assured. Compliance should meet the required specifications.
Step-by-step process for obtaining the certificate (For new companies)
1. Obtain Employer Code (from either Pension Fund Administrator) or PENCOM
The process begins with obtaining an Employer Code from the National Pension Commission (PenCom). You can also get the employer code through a PFA. Initiating contact with PENCOM, or working through an approved PFA, is the required first step.
2. Create a Retirement Savings Account with a Pension Fund Administrator (PFA)
Upon issuance of the Employer Code, the company must register with a licensed PFA. PENCOM recognizes only approved PFAs for this purpose.
The PFA will onboard the company and its employees according to PENCOM requirements.
3. Prepare Employee Pension Schedule
Compile a schedule of all employees, including their RSA PINs and contribution details to ensure full PENCOM compliance.
4. Obtain a Group Life Insurance Policy from an Insurance Company
The company must obtain a valid Group Life Insurance Policy for its employees in line with PENCOM’s standards.
To obtain this, complete the insurer’s form and submit employee details for PENCOM verification.
Employer pension contribution obligations
According to the Pension Reform Act (PRA) of 2014, all employers in Nigeria who have three or more employees are required to engage in the Contributory Pension Scheme (CPS). This law mandates that employers contribute a minimum of 10% of each employee’s monthly earnings, which encompass basic salary, housing, and transport allowances, into a Retirement Savings Account (RSA). This statutory obligation is regulated by PENCOM.
Key Employer Obligations
- Contribution Rates: The minimum monthly pension contribution stands at 18% of an employee’s total monthly earnings. Employers are responsible for contributing 10%, while employees are expected to contribute the remaining 8%. These rates are enforced by PENCOM.
- Timely Remittance: Employers must deduct the employee’s 8% share from their pay and, along with their own 10%, submit the full 18% directly to the Pension Fund Custodian (PFC) as directed by the employee’s Pension Fund Administrator (PFA). This contribution must be remitted within 7 working days following the employee’s payday. PENCOM ensures strict adherence to this timeline.
- Group Life Insurance: In addition to pension contributions, employers are required to hold a Group Life Insurance Policy for all employees, offering coverage that is at least three times the employee’s annual total earnings, as specified by PENCOM regulations.
Penalties for Non-Compliance
Failing to submit pension contributions on time can lead to serious consequences. Employers who fall behind are subject to a penalty of at least 2% of the total unpaid contributions for each month the delay persists. Moreover, organizations that default may face criminal charges and could be disqualified from government contracts. Always stay updated with PENCOM requirements to avoid penalties.
For enquiries or professional assistance with filing PENCOM compliance applications, you may reach out to us by filling the form on this link or through either of the live chat icons on this page, and we’ll respond to you.
